Make the Call: Protect the Mortgage Interest Deduction

The National Association of REALTORS® (NAR) is again asking REALTORS® to contact their members of the U.S. Senate to warn them about the dangers to the housing market and the economy of reducing or eliminating the mortgage interest deduction and making other tax changes that could hurt home owners. SILVAR members should have received a second Call for Action this week from NAR. Its launch came as a response to the co-chairs of President Obama’s bipartisan Federal Deficit Reduction Commission, charged with the task of finding ways to balance the budget by 2015 and to reduce the deficit by $4 trillion by 2020, release of their recommendations in a draft report titled “The Moment of Truth.”

The plan called for significant reductions to the mortgage interest deduction and other major tax reforms. The panel recommended converting the deduction to a 12 percent non-refundable tax credit available to all taxpayers, capped at $500,000, and limited to principal residences only (no credit for interest from second residence and equity). The panel also recommended the elimination of itemized deductions and the taxation of capital gains as ordinary income.

The deficit commission voted on the plan last week, and while it received a majority 11-7 vote, it fell short of the super-majority needed (a vote of at least 14 of its 18 members) to prompt immediate congressional action. Regardless of the outcome of the vote, it is imperative REALTORS® make their voices heard now because individual recommendations, like cuts to the MID and other programs impacting home ownership, could be included in federal budget legislation in early 2011.

The tax deductibility of interest paid on mortgages is a powerful incentive for home ownership and has been one of the simplest provisions in the federal tax code for more than 80 years. In a new survey commissioned by NAR and conducted online in October 2010 by Harris Interactive of nearly 3,000 homeowners and renters, nearly three-fourths of homeowners and two-thirds of renters said the mortgage interest deduction was extremely or very important to them.

Recent progress has been made in bringing stability to the housing market and any changes to the MID now or in the future could critically erode home prices and the value of homes by as much as 15 percent, according to NAR’s research. This would negatively impact home ownership for millions of Americans, including those who own their homes outright and have no mortgage.

Any further downward pressure on home prices will hamper economic recovery, raise foreclosures and hurt banks’ abilities to lend and likely tip the economy into another recession, resulting